FPA urges MPs to back FoFA changes as clock ticks down

Members of Parliament have been urged to support four key amendments to the Future of Financial Advice (FoFA) bills that the Financial Planning Association of Australia (FPA) says are vital to ensure the legislation meets its objective of improving access to financial advice.

The FPA says time is of the essence, with a Parliamentary Joint Committee (PJC) report already tabled and a Senate Economics Committee report due today.

In a letter from chief executive Mark Rantall, the FPA says it broadly supports FoFA, but still has reservations about four aspects of the draft legislation. These include:

• Start date and transition.
• How scaled advice interacts with the best-interests duty.
• Opt in and consequent dispute-resolution issues.
• Fee disclosure statements.

Rantall told PP Online about the changes the FPA has called for.

“We’re hopeful that when this legislation gets to be debated in Parliament, common sense will prevail and we will end up with legislation that’s in the best interest of consumers, and which will be able to be implemented by financial planners,” Rantall says.

“As it stands today, it would be extraordinarily difficult for a financial planner to comply by July 1,2012.”

Rantall says the FPA supports the thrust of FoFA – with the continued exception of opt in and additional fee disclosure – but has called for modifications to help the legislation meet its stated goals. The FPA remains concerned that neither opt-in nor the additional-disclosure provisions have been the subject of regulatory impact statements.

The FPA letter to MPs says it aims to “bring to your attention the critical points of the respective bills that are before parliament and which, if not addressed, will result in FoFA reforms failing to achieve their objectives”.

The FPA letter claims the FoFA reforms are likely to have as great an impact on the industry as the Financial Services Reform Act, which came into effect in 2002 with a two-year transition period. It has called for a 12-month transition period and a “hard-compliance date” of July 1, 2013.

“The FPA acknowledges the announcement by ASIC in the media release issued on the 13th of December to provide a 12-month assisted-compliance period to assist compliance with the best-interest measures, however we do not believe this is sufficient in helping the industry meet the current July 1, 2012 deadline,” the letter states.

It says Section 961(B)(2)(g), requiring a financial planner to take “any other step that would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances”, is too general, is causing confusion and will prevent the effective provision of scaled advice.

It proposes an amendment to the legislation so the relevant section would require a financial planner to take “any other step that a person with a reasonable level of expertise relevant to the subject matter of the advice that has been sought, would reasonably be expected to have taken in the best interest of the client, given the client’s relevant circumstances at the time of the advice”.

It also argues that its proposed changes will “balance the integrity of the government’s intent and the practical capacity for ASIC to negotiate solutions with industry through regulatory guidance”.

The FPA repeats its view that opt in is redundant, and that “the banning of commissions, volume payments/rebates and introduction of best interest,” are sufficient to achieve the same level of consumer benefit.

It also states that it is inappropriate for the proposed prescriptive fee-disclosure statement requirements to be applied to all existing clients. It says the requirements should be prospective, “that is, applicable going forward and therefore only required for new clients”.

Financial planners are already subject to stringent fee disclosure requirements under FSR that FoFA will unnecessarily duplicate, according to the FPA. ASIC has an existing 12 separate Regulatory Guides covering disclosure, and product providers already require the disclosure of “advice fees” on annual statements to their members.

“It is the FPA’s view that if there are inadequacies with these requirements, they should be addressed prior to adding further obligations, which are burdensome for businesses and unhelpful for consumers,” it says.

The Association of Financial Advisers (AFA) wrote to MPs last week, urging them to support changes to the draft FoFA bills. The AFA suggested five changes:

• Removing retrospective fee disclosure requirements.
• Removing the opt-in obligation.
• Improving the clarity and certainty with the best interests duty.
• Adequately ensuring that the ban on conflicted remuneration is not applied retrospectively.
• Delaying commencement until the industry can be prepared.

Consumer watchdog CHOICE says the benefits of passing the legislation now and in full will mean better, more reliable and less costly advice for Australians around investments and superannuation.

“CHOICE asks the independents in the Parliament to side with everyday people and pass this Bill tomorrow (Thursday March 15). It will increase consumer engagement with their retirement savings and ensure the industry puts their clients’ interests ahead of their own,” says CHOICE director of campaigns & communications, Christopher Zinn.

The consumer group says, to date, the issues around conflicts of interest, commissions and informing clients about how much they are really paying for advice have been cloaked in a technical and complex debate.

“It’s timely that Thursday, when this bill comes before Parliament, is also World Consumer Rights Day. It celebrates the day in 1962 when JFK outlined the four principal consumer rights, and they ring as true today as they did then,” says Zinn.

“While the FOFA reforms are complex, our message to consumers is very simple – ask not what you have done for your financial adviser, but what your financial adviser can do for you.”